First Hawaiian Bank: Hawaii/Guam

November 20, 2003

First Hawaiian Bank Economic Forecast:
Hawaii's Economy Among Nation's Healthiest and Should Stay Strong into 2004

	2003 Estimate	2004 Forecast
Job growth	+2.5%	+2.0%
Inflation (CPI)	+1.8%	+2.1%
Visitor arrivals	+0.2%	+3.0%
Real personal income	+3.5%	+2.7%
Real Gross State Product	+3.3%	+2.5%

(Honolulu, Hawaii, November 20, 2003) – Hawaii’s economy is having a very good 2003, much better than the nation as a whole, and should continue healthy into 2004, economist Dr. Leroy Laney forecast today. Laney, economics consultant to First Hawaiian Bank, made his annual forecast at the bank’s Business Outlook Forum this morning at Dole Cannery.

“Hawaii has one of the healthiest economies in the nation,” said Laney, who is also a professor of economics and finance at Hawaii Pacific University. “Job creation has been strong and broadly based, thanks to a recovery in tourism and the effects of low interest rates. There is no reason at this point to expect that Hawaii’s good health shouldn’t continue in 2004, although some marginal slowdown might occur just because 2003 turns out to be a very good year and growth rates are hard to top.

“Rising longer-term interest rates could take some of the steam out of the local real estate market, and refinancings will be less likely to boost consumer purchasing power. Some of the pent-up demand driving new construction projects could also diminish. The ability of infrastructure to keep up and anti-growth sentiments in certain quarters may also play a role here.”

Laney said one big plus in the future will be recently announced military housing construction and renovations. “That could begin to impact the local economy as early as sometime next year. When it does, it should underpin construction activity for some time to come. Just the construction portion of these contracts could sum to well over $2 billion.

These projects will stretch over a number of years and have already raised questions about the ability of the local construction labor pool to provide enough workers,” Laney said.

His forecast for Hawaii in 2004:

Job count: +2.0 percent. “We could do better if there were any significant improvement in Japanese tourism.”
Hawaii inflation: +2.1 percent. “Inflation in the Islands should remain muted. There are few upward pressures on prices at the national level now.”
Visitor arrivals: +3.0 percent. “Given the still weak Japanese economy and all of the world’s current uncertainties, we might do well to see a 3 percent increase in arrivals for 2004. Especially on the Neighbor Islands, effects of two growing components of the visitor industry – time share and cruise ships – will be felt increasingly. In 2004, several new time-share projects will see occupancy, and Norwegian Cruise Lines will add two more vessels to the inter-island cruise route.”
Real personal income: +2.7 percent . “Higher long-term interest rates could start to cool construction and real estate – at least temporarily. Even so, a 2.7 percent growth rate in 2004 would still likely place Hawaii high among the states in economic growth.”
Real Gross State Product: +2.5 percent.

Job Growth

Laney called this year’s anticipated 2.5 percent job growth “healthy and pervasive. The divergence is striking – loss of jobs nationwide, gains here in Hawaii. That’s the main reason that Hawaii’s economy is doing so much better than the nation at this point.

“Hawaii’s recession after 9/11/01 was not as bad as we originally thought, mainly because it was contained mostly to the tourism sector, and it didn’t spread to other parts of the economy,” Laney said, thanks in great part to low interest rates.

Economic weakness was confined mostly to Oahu, because of Waikiki’s reliance on the weak Japanese market, Laney said. “The Neighbor Islands were not affected nearly as much, because of greater reliance on Mainland visitors,” he added.

Visitor arrivals

“Over the past decade, the domestic and international visitor markets have swapped positions. The domestic market’s contractions in the early 1990s turned to gains, and just the opposite happened to the Japanese market,” Laney said.

“The decade-long Japanese economic slump has taken its toll, and those who are traveling in Japan are showing a preference for destinations within Japan or cheaper international ones such as China and Korea.

“In Hawaii, Waikiki has been hurt most by the Japan market’s weakness. The Neighbor Islands, more dependent on the Mainland market, had a very good summer this year -- especially Maui. Added airlift from the Mainland was a big help.”

Interest rate effect

“Record low interest rates have really boosted Hawaii’s economy. Lower rates have had a bigger impact here than for the nation as a whole. Part of that probably relates to higher pent-up demand here and projects that may have been planned for some time that suddenly became more affordable,” Laney said.

“Construction, home sales, auto sales, and practically anything touched by interest rates were very strong. And widespread refinancing of mortgages put more money in consumer pockets.”

He said construction is at levels that haven’t been seen since the early 1990s, when the previous construction boom came to an end. A 37 percent growth in private building permits in the first half of 2003, mostly for residential construction, indicates that building will stay hot for some time, he said.

Interest rates have also spurred a major spike in home sales, he noted, and “the median price now exceeds that of the early 1990s, when home prices started to decline.”

Other indicators of economic strength cited by Laney:

An unemployment rate well below the national average.
Falling bankruptcy filings, from a peak of over 5,000 in 1998 to less than 3,500 this year.
New car sales “are likely to approach or even exceed the record set in 1989 and not matched since.”
Credit-card spending is growing at a double-digit percentage pace over 2002 based on same-store comparisons among First Hawaiian Bank merchant credit card customers.